Press Release

Conifer Holdings Reports 2019 First Quarter Financial Results 

Company to Host Conference Call at 8:30 AM ET on Thursday, May 9, 2019

Company Release - 5/8/2019 4:01 PM ET

BIRMINGHAM, Mich., May 08, 2019 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the first quarter ended March 31, 2019.

First Quarter 2019 Financial Highlights
(all comparisons to prior year period)

  • Commercial Lines gross written premiums increased 4% in the quarter to $22.6 million
  • Personal Lines gross written premiums decreased 16% to $1.6 million
  • Overall, gross written premium increased 2.0% to $24.2 million
  • Commercial Lines combined ratio was 100.9% (with accident year combined ratio of 96.5%)
  • Personal Lines combined ratio was 253.6% (with accident year combined of 148.5%)
  • Net loss of $680,000, or $0.08 per share based on 8.5 million average shares outstanding
  • As of March 31, 2019 book value was $5.14 per share

Management Comments

James Petcoff, Chairman and CEO, commented, “With the planned changes in our premium mix largely in place, Conifer is in a much better position to selectively grow our top line and achieve greater scale in 2019.  We have begun to see favorable trends that will help grow our commercial lines premiums, and are committed to lowering our expense ratio by first reducing our absolute cost, growing our earned premium base, and allowing the Company to achieve greater operating efficiency over time.  We believe this will ultimately help to drive long-term sustainable profitability and deliver positive shareholder returns.”

2019 First Quarter Financial Results Overview

  As of and for the
Three Months Ended March 31,
  2019  2018  % Change  
  (dollars in thousands, except share and per share amounts) 
           
Gross written premiums$ 24,216  $ 23,737  2.0% 
Net written premiums 20,322   19,845  2.4% 
Net earned premiums 21,687   23,800  -8.9% 
           
Net investment income 910   802  13.5% 
Net realized investment gains (losses) 19   161  **  
Change in fair value of equity investments 1,265   (297)     
Other gains -    -   **  
           
Net income (loss) (680)   213  **  
 Net income (loss) per share, diluted$ (0.08)  $ 0.02     
           
Adjusted operating income (loss)* (4,247)   1,780  **  
 Adjusted operating income (loss) per share, diluted*$ (0.50)  $ 0.21     
           
Book value per common share outstanding$ 5.14  $ 6.04     
           
Weighted average shares outstanding, basic and diluted 8,453,570   8,520,328     
           
Underwriting ratios:         
 Loss ratio (1)66.5% 55.7%    
 Expense ratio (2)41.6% 44.0%    
 Combined ratio (3)108.1% 99.7%    
           
* The "Definitions of Non-GAAP Measures" section of this release defines and reconciles data that are not based on generally accepted accounting principles. 
** Percentage is not meaningful         
(1) The loss ratio is the ratio, expressed as a percentage, of net losses and loss adjustment expenses to net earned premiums and other income from underwriting operations.   
(2) The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and other underwriting expenses to net earned premiums and other income from underwriting operations. 
(3) The combined ratio is the sum of the loss ratio and the expense ratio.  A combined ratio under 100% indicates an underwriting profit.  A combined ratio over 100% indicates an underwriting loss. 

2019 First Quarter Premiums

Gross Written Premiums
Gross written premiums increased 2.0% in the first quarter of 2019 to $24.2 million, compared to $23.7 million in the prior year period.  The increase was due to higher commercial lines premiums driven by an increase in the Company’s small commercial business group, offset by lower personal lines premiums during the quarter.     

Net Earned Premiums
Net earned premiums decreased 8.9% to $21.7 million for the first quarter of 2019, compared to $23.8 million for the prior year period.  The decrease is largely attributed to lower personal lines net earned premiums during the period.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review 
    
 Three Months Ended March 31,  
 2019  2018 % Change  
   
 (dollars in thousands) 
         
Gross written premiums$ 22,584  $ 21,788 3.7% 
Net written premiums 19,306   19,422 -0.6% 
Net earned premiums 20,698   20,127 2.8% 
         
Underwriting ratios:        
  Loss ratio 60.5%  50.6   
  Expense ratio 40.4%  45.7   
  Combined ratio 100.9%  96.3%   
         
Contribution to combined ratio from net (favorable)        
 adverse prior year development 4.4% (4.5%)   
         
        
Accident year combined ratio (1)  96.5%  100.8%  
         
(1) The accident year combined ratio is the sum of the loss ratio and the expense ratio, less changes in net ultimate loss estimates from prior accident year loss reserves. The accident year combined ratio provides management with an assessment of the specific policy year's profitability and assists management in their evaluation of product pricing levels and quality of business written. 

The Company’s commercial lines of business, representing 93.3% of total gross written premiums in the first quarter of 2019, primarily consists of property and liability coverage offered to owner-operated small- to mid-sized businesses, such as hospitality risks including restaurants, bars, taverns and professional organizations.

Commercial lines gross written premiums increased 3.7% to $22.6 million in the first quarter of 2019, due to growth in the Company’s specialty small business line. 

For the first quarter of 2019, the commercial lines combined ratio was 100.9%.   The commercial lines accident year combined ratio was 96.5% for the quarter. 

Personal Lines Financial and Operational Review

Personal Lines Financial Review
   
 Three Months Ended March 31, 
 2019  2018 % Change  
  
 (dollars in thousands) 
         
Gross written premiums$ 1,632  $ 1,949 -16.3% 
Net written premiums 1,016   423 140.2% 
Net earned premiums 989   3,673 -73.1% 
         
Underwriting ratios:        
 Loss ratio187.5% 83.5%   
 Expense ratio66.1% 34.9%   
 Combined ratio253.6% 118.4%   
         
Contribution to combined ratio from net (favorable)        
 adverse prior year development105.1% 23.8%   
         
          
  148.5%  94.6  
         

Personal lines, which consists of low-value dwelling and wind-exposed homeowner’s insurance, represented 6.7% of total gross written premiums for the first quarter of 2019.  Personal lines gross written premiums decreased 16.3% to $1.63 million in the first quarter of 2019 compared to the prior year period.  This was mainly due to a 47.2% decline in gross written premiums in the wind-exposed lines of business, including Florida homeowners. 

This decline is largely due to the Company’s strategic initiative to significantly reduce exposure in this line of business. 

For the first quarter of 2019, the personal lines reported a $1.6 million underwriting loss of which $1.8 million was attributable to wind-exposed homeowners lines, and with the majority stemming from the Florida Homeowners business.  This loss was mostly due to $1.3 million of reserve development on prior years, and $250,000 of reinstatement premiums related to Hurricane Irma.  Due to the planned decline in the wind-exposed business and the related reinstatement costs, net earned premiums were only $3,000 in the quarter, for the wind-exposed business.  This resulted in unusually high loss and expense ratios, which should stabilize as we more fully transition out of wind-exposed lines.

Combined Ratio Analysis

 Three Months Ended March 31,    
 2019 2018    
      
 (dollars in thousands)     
           
Underwriting ratios:          
Loss ratio 66.5% 55.7%    
Expense ratio 41.6% 44.0%    
Combined ratio 108.1% 99.7%    
           
Impact to combined ratio from net (favorable)          
adverse prior year development 9.1% 0.0%    
           
Accident year combined ratio          
  99.0% 99.7%    
           

Combined Ratio
The Company's combined ratio was 108.1% for the quarter ended March 31, 2019, compared to 99.7% for the same period in 2018.  The Company’s accident year combined ratio for the quarter ended March 31, 2019 was 99.0%, compared to 99.7% in the prior year period.     

Loss Ratio:

  • The Company’s losses and loss adjustment expenses were $14.5 million for the three months ending March 31, 2019, compared to $13.3 million in the prior year period.  As a result, Conifer reported a loss ratio of 66.5%, compared to 55.7% in the prior year period.
     
  • Expense Ratio: The expense ratio improved to 41.6% for the first quarter of 2019, compared to 44.0% in the prior year period.

Net Investment Income
Net investment income increased 13.5% to $910,000 during the quarter ending March 31, 2019, compared to $802,000 in the prior year period. 

Net Income (Loss)
In the first quarter of 2019, the Company reported net loss of $680,000, or $0.08 per share, compared to net income of $213,000, or $0.02 per share in the prior year period.

Adjusted Operating Income (Loss)
In the first quarter of 2019, the Company reported adjusted operating loss of $4.2 million, or $0.50 per share, compared to adjusted operating income of $1.8 million, or $0.21 per share, for the same period in 2018.  See Definitions of Non-GAAP Measures.

Earnings Conference Call
The Company will hold a conference call/webcast on Thursday, May 9, 2019 at 8:30 a.m. ET to discuss results for the first quarter ending March 31, 2019.  

Investors, analysts, employees and the general public are invited to listen to the conference call via:

Webcast:                     On the Event Calendar at IR.CNFRH.com
Conference Call:         844-868-8843 (domestic) or 412-317-6589 (international)

The webcast will be archived on the Conifer Holdings website and available for replay for at least one year.

About the Company
Conifer Holdings, Inc. is a Michigan-based insurance holding company.  Through its subsidiaries, Conifer offers customized insurance coverage solutions in both specialty commercial and specialty personal product lines marketing mainly through independent agents in all 50 states.  The Company is traded on the Nasdaq Global Market (Nasdaq: CNFR).  Additional information is available on the Company’s website at www.CNFRH.com.

Definitions of Non-GAAP Measures
Conifer prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP).  Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual, and therefore is not reconciled to GAAP data.

We believe that investors’ understanding of Conifer’s performance is enhanced by our disclosure of adjusted operating income.  Our method for calculating this measure may differ from that used by other companies and therefore comparability may be limited.  We define adjusted operating income (loss), a non-GAAP measure, as net income (loss) excluding net realized investment gains and losses, and other gains and losses, after-tax, and excluding the tax impact of changes in unrealized gains and losses.  We use adjusted operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance.

Reconciliations of adjusted operating income and adjusted operating income per share:

  Three Months Ended March 31,  
  2019  2018  
  (dollars in thousands, except share and per share amounts) 
       
Net income (loss)$ (680) $ 213  
Less:      
 Net realized investment gains (losses), net of tax 19   161  
 Change in fair value of equity securities, net of tax 1,265   (297) 
 Net decrease (increase) in deferred gain on losses      
  ceded to ADC, net of tax 2,283   (1,431) 
Adjusted operating income (loss)$ (4,247) $ 1,780  
        
Weighted average common shares, diluted 8,453,570   8,520,328  
        
Diluted income (loss) per common share:      
Net income (loss)$ (0.08)  $0.02  
Less:      
  Net realized investment gains (losses), net of tax -    0.02  
  Change in fair value of equity securities, net of tax 0.15   (0.04) 
  Net decrease (increase) in deferred gain on losses      
   ceded to ADC, net of tax 0.27   (0.17) 
 Adjusted operating income (loss) per share$ (0.50) $ 0.21  
        

Forward-Looking Statement

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, and include Conifer’s expectations regarding premiums, earnings, its capital position, expansion, and growth strategies.  The forward-looking statements contained in this press release are based on management’s good-faith belief and reasonable judgment based on current information.  The forward-looking statements are qualified by important factors, risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including those described in our form 10-K (“Item 1A Risk Factors”) filed with the SEC on March 13, 2019 and subsequent reports filed with or furnished to the SEC.  Any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws or regulations.

For Further Information:

Jessica Gulis, 248.559.0840
[email protected]

Conifer Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share data)


     March 31 December 31,
     2019 2018
Assets  (Unaudited)  
Investment securities:    
 Debt securities, at fair value (amortized cost of $124,599 and $ 124,057 $ 120,440
  $122,678, respectively)    
 Equity securities, at fair value (cost of $9,594 and $9,559, respectively)  12,038  10,737
 Short-term investments, at fair value  8,069  8,925
  Total investments  144,164  140,102
        
Cash and cash equivalents  10,411  10,792
Premiums and agents' balances receivable, net  18,684  21,247
Receivable from Affiliate  2,279  3,582
Reinsurance recoverables on unpaid losses  24,551  29,685
Reinsurance recoverables on paid losses  9,567  5,060
Prepaid reinsurance premiums  3,659  1,829
Deferred policy acquisition costs  12,153  12,011
Other assets  12,680  8,444
   Total assets $ 238,148 $ 232,752
        
Liabilities and Shareholders' Equity    
Liabilities:    
 Unpaid losses and loss adjustment expenses $ 93,966 $ 92,807
 Unearned premiums  51,519  52,852
 Debt   34,583  33,502
 Deferred gain on ADC  3,394  5,677
 Accounts payable and other liabilities  11,771  5,751
   Total liabilities  195,233  190,589
        
Commitments and contingencies  -   - 
        
Shareholders' equity:    
 Common stock, no par value (100,000,000 shares authorized;    
  8,353,051 and 8,478,202 issued and outstanding, respectively)  86,268  86,533
 Accumulated deficit   (42,438)   (41,758)
 Accumulated other comprehensive income (loss)  (915)   (2,612)
  Total shareholders' equity   42,915  42,163
   Total liabilities and shareholders' equity $ 238,148 $ 232,752
        


Conifer Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except share and per share data)
          
     Three Months Ended  
     March 31,  
     2019 2018  
          
Revenue       
 Premiums      
  Gross earned premiums $ 25,550 $ 27,724  
  Ceded earned premiums   (3,863  (3,924 
   Net earned premiums  21,687  23,800  
 Net investment income  910  802  
 Net realized investment gains  19  161  
 Change in fair value of equity securities  1,265   (297 
 Other income  422  357  
   Total revenue  24,303  24,823  
          
Expenses       
 Losses and loss adjustment expenses, net  14,456  13,328  
 Policy acquisition costs  5,589  6,513  
 Operating expenses  4,323  4,187  
 Interest expense  710  619  
   Total expenses  25,078  24,647  
          
Income (loss) before equity earnings and income taxes   (775) 176  
 Equity earnings of affiliates, net of tax  106  55  
 Income tax (benefit) expense  11  18  
          
Net income (loss)   (680) 213  
          
Earnings (loss) per common share,      
  basic and diluted $ (0.08)$ 0.02  
          
Weighted average common shares outstanding,      
  basic and diluted  8,453,570  8,520,328  
          


 

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Source: Conifer Holdings, Inc.